Investors query demand for standalone China A-shares funds

Aberdeen Standard becomes latest group to launch a specific China A-shares fund

Aberdeen Standard Investments (ASI) is the latest fund group to unveil a China A-share equity fund for UK investors, although one investor has queried whether a standalone fund is entirely necessary.

The ASI China A-Share Equity fund portfolio is set to launch next month and will mirror the firm’s existing $2.6bn Luxembourg-domiciled Aberdeen Standard Sicav I China A Share Equity fund launched in 2015.

It will be managed by the same 24-strong team, based in Hong Kong, Shanghai and Singapore, which uses ESG criteria and corporate engagement to assess companies.

An I share class will be available with an annual management charge of 1%.

Last month, First State Investments launched the First State China A Shares Fund, a sub-fund of its Dublin-domiciled Ucits fund. The fund is managed from Hong Kong by Quanqiang Xian and the wider First State Stewart Asia investment team, and also has a focus on ESG issues.

Is a dedicated fund necessary?

Shore Financial Planning director Ben Yearsley queried whether a standalone A-shares fund is necessary when the sector is increasingly becoming part of broader Asia and emerging markets funds.

Yearsley said: “As a long-term investor, I’m a fan of China and A-shares, however I question how many actually need a dedicated fund as more and more Asia and emerging markets funds are including them.”

He added: “The A-share market is fascinating though as it gives you access to so many areas you wouldn’t normally get into through Hong Kong.”

Not without challenges

Matthews Asia chief investment officer Robert Horrocks said A-shares have seen an “awful lot of interest” since MSCI announced in February it was quadrupling the weighting of China A-shares in its global benchmarks later this year.

He said having a fair weighting to A-shares is important, but warned the quality of company management is often poor and he struggles with which companies to own. “These are not well-managed companies,” he added.

He also said the government can suspended trading at times of market stress.

ASI head of China equities Nicholas Yeo (pictured) said investing in A-shares is one way foreign investors can access the growth of the world’s second largest economy, but also noted it comes with challenges.

He said: “Corporate governance standards are improving but still relatively low and the A-shares market can be extremely volatile. The approach we’ve taken to these challenges is to focus on company fundamentals and not simply buy into the generic trend of China’s growth, and this has really paid off in recent years.”

An asset class in its own right

ASI said in its press release that according to Bloomberg, the China A-share equity market provides a “vast investment opportunity” with more than 3,500 listed companies across a broad range of sectors.

It said increasing foreign participation should help improve corporate governance, while the A-shares market is less correlated to global markets.

Willis Owen head of personal investing Adrian Lowcock said access to China A-shares is only going to grow as demand for these type of products moves away from being just the preserve of professional investors and discretionary managers.

He said: “At some point, China will need to be recognised as a sector or asset class in its own right. To help it get there, China is slowly allowing better access to A-shares, giving foreign investors direct access to the Chinese market and allowing them to share in the opportunities the country has to offer.”

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